Here is a quick recap of trades that we initiated, closed, or debated in the week that was July 13th – July 17th:
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Monday July 13th:
Name That Trade – JNJ: No More Tears
We took a look at the stock into their Q2 print and concluded:
JNJ suffers from the push and the pull of being considered part Consumer Staple and part Healthcare. While the stock has the relative cheapness and defensive nature of a large cap pharma and staple company, it also suffers from their exposure in emerging markets and regions where the dollar is very strong. While the 3% dividend yield appears to be attractive, with the yield on the 10 year treasury once again approaching 2.5% it may not be enough to offset the potential risks to growth.
In the near term I suspect that if results/guidance are not as bad as expected it would cause a pop to the 200 day moving average, up near $102. And a slight miss and mild guide down would cause a move back to just above last week’s lows near $98
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New Trade – CMG: A Slide of Guac?
Trade: CMG ($654) Buy July 24th weekly 650/600/550 Put Fly for $10
We thought the implied move into next week’s earnings looked cheap, especially for those willing to pick a direction. We had looked at the stock last month after Barron’s negative mention and thought it made sense to wait for a bounce if one agreed with their thesis. Well, the stock’s $50 two week bounce was enough for us to consider a short biased defined risk trade.
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Tuesday July 14th:
Name That Trade – BAC: Bank Shot
We took a look at the trade set up in the stock into their Q2 results and concluded:
In both volatility and dollar terms options prices seem fair, and possibly cheap depending upon your directional inclination. While most options traders I speak to think that bank vol in general is a sale, I guess when it comes to BAC, which has been a laggard both this year and on a long term basis I would say the stock has the potential to play catch up in a big way if investors ever had a reason to finally buy it.
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Name That Trade – CSX: Train in Vain
We took a look at the trade set up in the stock into their Q2 results and concluded:
the stock acts very poorly in an economic environment that should be conducive to cyclical companies like transports. I suspect a miss is IN the stock here, but a material guide down and the stock is at $30. A beat and raise and the stock is at $34.50, right near its converging 50 and 200 day moving averages.
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Name That Trade – YUM: Colonel Tso
We took a look at the trade set up in the stock into their Q2 results and conclude
I would be very surprised if YUM is able to provide a material guide up given the uncertainty around China’s economic growth, a country the company gets a little more than 50% of their total sales. The company stopped issuing monthly comps, so the quarter just ended is a bit more opaque than usual. But I suspect a Q2 miss will be overshadowed by either a guide up, or merely thrown on the heap of a guide down. Given the new-found presence of activists investors like Third Point, I suspect the stock find support in the mid $80s.
Prior to numerous activists taking stakes, it was my guess that YUM would have been ground zero for U.S. multi-nationals who do a lot of biz in China on the slightest confirmation of decelerating growth. That has clearly been wrong
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Wednesday July 15th:
Trade Update – Closing $WDAY July Call Fly for a Double
ACTION- WDAY ($83.10) sold to close the July 80/85 1×2 call spread at 2.80
With 2 days to expiration and the stock nearing our short strike we decided to take the profit of more than a double and not risk the balance.
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New Trade – $NFLX: Queue 2
Trade: NFLX ($98) Buy July 97.50/ 87.50 / 77.50 Put Fly for 2.50
We have not traded the stock, on the site for more than a year for good reason, it has been in my opinion an irrational un-tradable stock for those who do not agree that subscriber growth is the most important metric that should drive the stock’s value. We are not dumb enough to short the stock outright, and like the risk reward of the put fly for those looking to make a contrarian play into the print, this trade was obviously a total loss, up nearly 20% on the week. NFLX is back on our banned list.
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Trade Update $INTC: Closing Balance Of July Puts
Action: INTC ($29.68) Sold to Close half of the July 30 puts at .86 for an .38 gain (for .49 average gain)
After being on this one for months, I concluded that the short trade set up into the print was not great:
It’s my sense that a miss and a mild guide down is IN the stock and if not as bad as feared the stock could see a short covering rally in the near term
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Thursday July 16th:
New Trade $SLB: Schlumber Party
Trade: SLB ($83.85) Buy July / Aug put calendar for 1.20
Into SLB’s Q2 print:
We like the idea of playing for a breakdown in the coming weeks as crude oil appears to have no shortage of headwinds in the near term. While vol doesn’t exactly appear high out in late Aug, we think it makes sense looking to finance the purchase.
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Name That Trade – $GOOGL frugal no more?
We took a look at the trade set up in GOOGL into their Q2 print and concluded:
For those with a directional view the July 590 calls and the July 590 puts offered at $10.50 (stock ref $590) look very cheap with a break-even down 1.8% at $579.50, or up 1.8% at $600.50
This was a massive miss on our part, no matter what our fundamental view, options prices were WAY too cheap. We hope some readers took this away from the post.
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Friday July 17th:
Eat My Shorts – $PG, $COST, $BA
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Considering Our Options: $SLB Egg
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